CSEA Contract Will Cost Taxpayers Plenty

A tentative contract agreement between Governor George Pataki and New York’s largest union of state government workers would add more than $1.2 billion in higher annual wage and pension costs to the state budget by fiscal 2007-08, if it is ultimately extended to all executive branch state employees.

Such a precedent could be much more expensive for New York City, whose municipal labor agreements expired last year. Applied to the entire city workforce, the pay raises contained in the state’s pending deal with the Civil Service Employees Association (CSEA) would ultimately raise the city’s personal service costs by $2.3 billion a year.

The CSEA deal, announced March 5, calls for salary increases worth about 11 percent to the average union member by the time the contract expires on March 31, 2007. The roughly $264 million fully phased-in annual cost of the CSEA agreement would be offset to an unspecified degree by some reported health insurance concessions on the part of the union.

The estimated cost implications of the tentative CSEA contract are explained and analyzed in more detail below.

Details of the deal

The CSEA deal calls for:

an immediate $800 bonus for each union member, which does not become part of the permanent base salary;

a 2.5 percent base salary increase on April 1, 2004;

a 2.75 percent base salary increase on April 1, 2005; and

a base salary increase of 3 percent on April 1, 2006, and an across-the-board base salary hike of $800 for all employees starting March 31, 2007.[1]

The $800 addition to the salary base at the end of fiscal 2007 will be equivalent to about 2.3 percent of the average salary at that stage in the contract. On a compound basis, therefore, the deal appears to raise the average base salary for union members by 10.96 percent a year.

The roughly 70,000 CSEA members (including part-time and seasonal workers) are the lowest-paid tier of state employees, earning an average of $32,112 a year, according to the state Division of the Budget (DOB). Calculated against this pay base, the cost of their proposed pay raise comes to about $264 million, including added pension contribution costs.[2] The up-front bonus will cost about $56 million in fiscal 2004-05.

In contract talks with the CSEA, state negotiators did not achieve one of their top bargaining priorities an increase in the employee’s share of skyrocketing health insurance premiums. However, the union says it has tentatively agreed to higher deductibles and co-pays for some drugs and medical services. These concessions could offset 10 percent or more of the permanent base salary increase, based on preliminary information. However, neither the union nor the Pataki administration has released an estimate of health benefits savings stemming from the tentative contract.

The impact of a “pattern”

Assuming union members ratify the agreement,[3] history would indicate the CSEA contract will be viewed as the pattern for deals with the other eight state government unions whose members have been working without contracts since March 31, 2003. Once these contracts are finalized, state agencies traditionally grant the same pay raises to non-union “management/confidential” state employees.

The annual payroll for all employees in the executive branch, including the State University of New York (SUNY) and City University of New York (CUNY), is about $9.89 billion,[4] according to DOB. An 11 percent average pay increase across this entire base would translate into an additional state budget expenditure of $1.23 billion, including pensions.[5] Thus, the net cost of such a settlement would probably top $1 billion even after subtracting the value of government-wide union concessions on health insurance following the CSEA pattern.

What it could mean to New York City

New York City’s municipal unions have been working without contracts since last summer. The cost of each additional percentage point increase in salaries for New York City workers is $212 million, including pensions and other related costs, according to the city Office of Management and Budget. An 11 percent increase applied to this pay base would cost an additional $2.33 billion a year by fiscal year 2008.

The cost to the city would be significantly larger because it has more employees than the state,[6] and because a larger portion of the city’s workforce consists of police officers, teachers and others enrolled in more expensive pension plans.

Keeping pace with inflation

The composite consumer price index for New York State over the period covered by the CSEA contract is projected at 9 percent, according to the Governor’s 2004-05 budget. [7] Excluding the up-front bonus, the proposed average base salary increase for CSEA members represents an increase of 8.5 percent during the same period. As noted, the $800 addition to base pay levels at the end of the contract will be worth another 2.3 percent in the year after the deal expires. This is only slightly above the 2.1 projected inflation rate for the last fiscal year covered by the contract.

Under their prior contracts, which covered April 1999 through March 2003, state employees received pay increases averaging nearly 14 percent about three percentage points higher than inflation during that period. Many state and local employees effectively received an additional 3 percent annual raise in 2000, when a new law eliminated the required employee share of pension contributions for all workers with more than 10 years in service.

Contrast in state and city negotiating stances

Although the state and city both continue to face significant budget gaps in the years ahead, Governor Pataki and Mayor Michael Bloomberg have taken strikingly different approaches to their respective union contract negotiations.

New York State’s Executive Budget documents briefly mention the state’s objective of negotiating lower health benefit costs, but Governor Pataki has not highlighted collective bargaining issues in any of his public statements concerning the state budget.

Mayor Bloomberg, on the other hand, has faulted municipal labor unions for failing to help close the city’s budget gaps. The mayor has said union members should not expect any pay raise unless they deliver productivity concessions at the bargaining table. While the CSEA deal compares favorably to generous contracts negotiated by some other public sector employers,[8] it clearly does not meet Bloomberg’s fiscal parameters for New York City.

Pension cost calculated at 12 percent of salaries for CSEA members. This is the figure being billed by the New York State and Local Employee Retirement System for 2005 fiscal years.

The CSEA membership vote is spread across several dates in April.

This figure does not include employees of the Legislature or the Judiciary, many of whom also are traditionally granted pay increases based on the executive branch union pattern.

The employer pension contribution rate is estimated at an average of 13 percent for the entire workforce, including corrections officers and state police, whose pensions are somewhat costlier than those for CSEA and other civilian workers.

As of December 2003, state agencies other than the Judiciary and Legislature had about 203,000 full-time equivalent (FTE) employees, according to the state Comptroller’s Office. New York City’s comparable FTE count is about 293,000, according to the Mayor’s Preliminary Budget for 2004-05.

For example, employees of the New York State Metropolitan Transportation Authority received a flat bonus of $1,000 and pay increases of 3 percent in each of the last two years of their latest three-year deal, which expires in 2005. The Port Authority of New York and New Jersey reportedly has reached a tentative agreement that will grant its police officers a 25 percent pay increase over seven years. Federal workers, meanwhile, received a 3.1 percent raise in 2003.

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The Empire Center is an independent, non-partisan, non-profit think tank located in Albany, New York. Our mission is to make New York a better place to live and work by promoting public policy reforms grounded in free-market principles, personal responsibility, and the ideals of effective and accountable government.